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Management Decisions
and Control
Lecture 1

Introduction to Management
Accounting

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 Lecture Objectives
1. Objectives of MDC

3. Approaches of MDC

5. Planning & Control Decisions

7. The Major Purposes of Accounting

9. History of Management Accounting

11. Management Accounting and Other Disciplines

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 Objectives of MDC
On successful completion of this subject students should be
able to:
1. Understand, apply and critique the application of a range of different
decision models used to enable managers to solve problems, control
and evaluate performance within an organisational context.
2. Within the social context of an organisation, evaluate the impact of
different decisions, control systems and performance evaluation
methods. (See Figure 1)

This builds on and extends the knowledge and skills developed

in 22321 Cost
Management Systems (CMS) for the following objectives:
1. Critically understand the role of management accounting in modern
organisations;
2. Appreciate both historical and contemporary views of how
management accounting creates value for organisations;
3. Further develop a capacity for independent research and learning;
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4. Further develop
Management Decisions and Control 22421/0
communication and teamwork skills; and
 Approaches to MDC

I am absolutely committed to helping you pass (or better) this

subject therefore;

If you want to PASS the subject, you need to:

1. Meet all the criteria for assessment,
2. Read the chapters in the textbook before attending the lecture,
3. Attend the lecture, listen and take notes,
4. Complete the key questions for the homework before the tutorial,
5. Attend the tutorial and get involved in the class discussion,
6. Ask questions in the tutorial on things you don’t understand,
7. Get involved in the Case Study,
8. Think about the subject and the way it links together,
9. Revise before your exams.

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 Approaches to MDC
If you want to FAIL the subject, make sure you;
1. Do not meet all the criteria for the assessment,
2. Do Not read the chapters in the textbook before attending the
lecture,
3. Do Not attend the lecture, listen and take notes,
4. Do Not do the key questions for the homework before the tutorial,
5. Do Not attend the tutorial and defiantly Do Not get involved in the
class discussion,
6. Do Not ask questions in the tutorial on things you don’t understand
(which will probably be everything),
7. Free-ride on your group members in the Case Study,
8. Do Not Revise before your exams.
9. Cram and try to learn the questions from the tutorials before each
exam.
10. Do not think about the issues and make connections between
them.
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 Planning Decisions and Control

 Planning Decisions
The process of choosing goals, predicting results under various
ways of achieving these goals and then deciding on how to attain
the desired goals.

 Control
Covers both the actions that implement the planning decision and
performance evaluation of the personnel and operations
undertaken in the achievement of goals.

 Opportunity Space – Simons (1995)

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 The Major Purposes of Accounting
The accounting system is the principal “quantitative”
information system in business
organisations. The system should provide information for 5
broad purposes:

 Formulating overall strategies and long range planning

 Resource allocation decisions
 Cost planning and cost control of operations and activities
 Performance measurement and evaluation of people
 Meeting external regulatory and legal reporting requirements.

The above may be summarised to include:

 Routine Internal Reporting

 Non-routine internal reporting
 External Reporting
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 The Organisation

Problems
&
Policies & Decisions
Guidelines

Solution 1
Assumption
1 Solution 2
Assumption Standard Costing Solution 3
2
Cost Behaviour
Assumption
3 CVP Analysis
Budgeting
Relevant Costing
Information Pricing Decisions
Control Systems
Performance
Evaluation

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 Theory
Many students think that theory is just some abstract thing
that has no relation to the real
world or what I will do in practice. This is a common
misconception. In fact, you develop
and use theories every day.

There is nothing as practical as a good theory (Alfred North Whitehead)

eg consulting practice

Theory explains How and Why!

 Why have so few firms adopted ABC?
 Why are our managers making the wrong decisions in the operations
of our company?

There is theory underpinning all subjects in your business degree,

however it is often only
implicit in the subject. Theory is a central (explicit) focus in MDC.

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History of Management Theory
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 History of Management Accounting
The history of management accounting is closely tied to the
development of management.

Cottage Industries (Pre-19th Century)

Pre-19th Century: subcontracts its production
 Financial accounting system provides sufficient information to
assess the efficiency and profitability of the enterprise
 There was little need for cost (management) accounting)
information
 Control through external markets

Industrial Revolution (Early 19th Century)

Early 19th Century: emergence of factory to take advantage of
economies of scale.
 Internal production replace market transactions
 Separation of ownership & management
 Management accounting information are required to:
 Motivate managers at remote site
 Evaluate the performance of managers
 Emergence of cost management systems 10
Management
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 History of Management Accounting
Scientific Management Movement (mid-19th Century to early
20th Century)
 Different products that consumes different amount of resources
created the need for cost accounting information
 Scientific Management engineers studied work processes:
 In order to redesign material and work flow and to decompose
complex processes into a sequence of simpler and more controllable
processes
 The objective is to simplify the work, improve workers efficiency,
develop standards to monitor workers’ efforts.
 Fordism: large scale production to reap benefit of economy of scale.

Management control for diversified organisations (created to

capture the potential gains
from economies of scope):
 Problems of controlling diverse activities of conglomerates (DuPont:
1903)
 Divisionalisation & decentralisation
 Use of budgets for coordination 11
Use of
 Decisions
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 History of Management Accounting
Human Resources Approach (Early to mid 20th Century)
 Mangers get things done through people
 Cannot view people simply as machines in order to get things done,
need to understand what motivates people and reward them
accordingly

Management Science (Operations Research) (mid to later part

20th Century)
 Application of the mathematical and statistical models developed in
WWII
 Focus is on Optimisation models, information models computer
simulation linear programming
 Used extensively in management decision making and control
decisions

Contingency Approach (later part 20th Century)

 Management is like life, it is not based on simple ideas and one
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approach
Management Decisions or
and Control idea does not fit all situations.
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 History of Management Accounting

Sociological Approach (later part 20th Century to 21st Century)

 Institutional Theory examines organised systems of social
relationships which embody common values and procedures in order
to meet the needs of society.
 Labour Process Theory looks at the way work process raw materials
and are transformed into social use under capitalistic economic
systems and the tension that exists between the workers and the
capitalists. Focus can then be applied to the type of control systems
used.
 Critical discourse looks at the use of discourse and speech in the
behaviour and functions of social groups.

From cost management to cost accounting (1925 – 1985)

 Demand for product cost information for financial accounting
 Conventional two-stage cost allocation
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 Overhead
Management Decisions costs are accumulated in large cost pools
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 Recent Developments in
Organisations (Since 1980’s)
 TQM
 JIT (reduce inventory & manufacturing cycle times)
 Computer integrated manufacturing (flexible manufacturing -
produce small batches)
 All of these manufacturing technologies are different from traditional
manufacturing environment of mass production of standardised
products
 Traditional cost accounting measures were inhibiting the
introduction of innovative manufacturing processes and
technologies:
 eg. attempts to absorb overhead into products by producing items
well in advance of when they are needed and Fordism which stresses
large scale production results in increase in profit but the practice
undermines the company’s effort to:
 reduce inventory level
 eliminate manufacturing defects
 speed throughput times
 improve responsiveness to customers 14
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 Recent Developments in
Organisations (Since 1980’s)
Growth of service organisations and virtual Firms
 Carries no stock
 Produces heterogenous products (vs. fordism which stresses large
scale production of homogeneous products)
 Importance of quality of service and innovation (intangible assets)
 Inadequacies of scientific management which stresses efficiency and
ROI (financial measures of performance)

Challenges of the future

To develop new management accounting systems to create

competitive advantage

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 Management Accounting and Other
Disciplines
Management
Accounting draws on
a number of other Economics
Finance
disciplines and
theoretical
frameworks.

Managemen Managemen Operations

t t Research
Theory Accounting

Behavioural
Science

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 Management Accounting and Other
Disciplines
Economics and Finance
Economics is based around the problem of scarce resources. Firm
based economics addresses
this issue. Finance issues of investment and financing influence the
information that is relevant for
those types of decisions.

Operations Research and Management Science

These disciplines have provided analytic and optimisation models for
management accounting. In
addition they have added useful frameworks on firm processes which
relate to the provision of
information to managers for decision making.

Management Theory and Organisational Behavior

Due to the fact that management accounting information is driven by
the provision of information for
managers to manage, the way individuals manage will influence what
type of information is
provided and how management accounting is viewed within this
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context.
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 Misconceptions of MDC and Content

Please answer True False

Performance evaluation is “the meaning of

life”

True / False

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